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GST reform — a role model for the world?
GST is a transformational and not an incremental reform. It is a new system that has replaced the old system that had long outlived its utility. Tweaking the old system would have delivered limited economic benefits, but the new system will now ensure huge gains
In the context of a smooth roll out of the Goods and Services Tax (GST) in India, Prime Minister Narendra Modi, in his monthly radio programme, ‘Mann ki Baat’ commented that such a big reform, at such a big scale, in such a vast country is likely to become a role model for the world.
That may very well be true. In fact, I would go a step further to say that GST reform also serves as a role model to see how any development problem needs to be approached.
The GST reform is not only a technically sound solution to India’s problem of indirect taxation but also that such a solution is comprehensive, transformational, uniform, and is rolled out nationwide in a big bang manner with careful attention to details.
It also holds lessons on how any reform process needs to be managed and the extent of preparation needed for a successful implementation of any programme. These lessons can already be learned even though these are still early days of the GST implementation.
GST reform is comprehensive in nature. A comprehensive solution is needed for solving any development problem effectively. Piecemeal solutions deliver limited value and for a shorter duration.
To give an example, when the need is for the larger health sector reforms, strengthening of only diagnostic services will create more demand for clinical services, and if the supply of clinical services do not increase commensurately, strengthening of diagnostics will have limited impact on health outcomes.
Similarly, when solution to the problem of vehicular traffic in large metropolis requires a multi-pronged strategy, relying on any single strategy such as the odd-even number scheme will have a very limited impact. It is here that the GST reform stands out.
To be fair, the nature of the GST reform is such that it could not have been introduced in a piecemeal fashion, nor could it have been rolled out in a phased manner. But not all development problems lend themselves to such a comprehensive solution.
Some reforms, such as in the healthcare sector or in management of city traffic, can potentially be introduced in a series of steps. What is important is to think of a holistic solution and implement that solution in a sequenced manner, without much delay.
The GST is a transformational and not incremental reform. The GST is a new system that completely replaces the old system that had long outlived its utility.
Tweaking the existing system would have delivered limited economic gains whereas, the new system promises huge economic benefits. GST reform is expected to boost economic growth through several ways: Better and higher tax compliance, digitisation of economy, higher tax revenues which will create scope for reduction in tax rates overtime and hence, reduction in prices, better data quality which will enable Government to sharpen its tax policy, higher foreign investment due to simpler and transparent tax system, and so forth.
Further, the GST system is futuristic in its design as it is fully digitised with built-in excess capacity which is expandable to accommodate any increase in tax base, without compromising on the system performance. Such a durable solution is bound to last for a long time to come.
The GST reform is an excellent example of how any reforms process needs to be managed. Whether it is politics of reform in getting the parliament and State assemblies support it or holding a series of meetings/consultations for finding a technically sound solution which is well-adapted to the context; whether it is about advocacy strategy for key stakeholders or education the general public. On all of these accounts, the GST reform offers valuable lessons.
GST reform is also a perfect example of implementation preparedness. A lot of preparatory work happened in terms of creating the entire eco-system and getting the system ready prior to the GST launch.
Designing and testing the Information Technology (IT)-system was critical part of implementation preparedness; and so was training of officers on GST, including the use of IT system. As a result, large scale trainings were conducted. Training material was developed, institutions were accredited to impart training to officers and the business community on a continuous basis.
Further, mass awareness campaigns were conducted through various channels (workshops, town halls, interaction programmes, media articles etc) to educate all stakeholders, including the general public. Creating Frequently Asked Questions, the GST rate reckoner, having a dedicated webpage for all GST-related information were essential part of the information education and communication campaign. Similarly, hawk-eyed monitoring of the programme in its initial stage is an important element of the implementation preparedness.
Undoubtedly, the GST stands out as a role model for reforms. It is likely that the world will take note of it and derive a lesson or two for their own benefit.
But how well these lessons and insights can be quickly used by India itself to usher pending reforms both at the Central and State level, remains to be seen.
(The writer is a development economist, formerly with the Bill & Melinda Gates Foundation and the World Bank)
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